Dreadful 10 Year Auction: Massive Tail, Plunging Bid to Cover, Fleeing Foreign Bidders

Tyler Durden's picture

It has been years since we have seen as dreadful a 10 Year auction as the just concluded sale of $20 billion in 10 Year paper.

With a high yield of 1.516%, the 10Y auction tailed a whopping 1.2bps to the When Issued, the biggest tail going back years.

Things got even worse when looking at the crashing Bid to Cover, which plunged from 2.70 just a month ago to a paltry 2.33, was the lowest since March of 2009.

The internals were likewise a disaster: the Indirect Bidders, after constantly soaking up 10Y paper over for the past 2 years, simply fled, taking down just 54.3% of the final allottment, down from 73.6% last month. And with Directs likewise barely budging, and holding 7.9% of the final proceeds, it meant Primary Dealers had to step up big time and purchase a whopping 37.7%, after taking down a modest 21.9% on average in the past 6 month: the highest Dealer award since January 2015.

In short: we called it dreadful, Stone McCarthy used "atrocious", and indeed this auction marked a stunning reversal in demand for 10 Y paper. In fact, if demand for auctions continues to evaporate at this rate, the US Treasury may have another problem on its hands: with natural buyers out, the only backstop would be Janet Yellen; although getting the Fed to start monetizing paper as soon as possible, i.e., QE4, will be just what the S&P doctor ordered... and frontran.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
carbonmutant's picture

Why buy bonds when you can get a 1.5% return in the S&P 500 every two days at this pace?

GUS100CORRINA's picture

What is really interesting about the BOND MARKET is how the reach for yield across the board is pushing the entire world into safe, high dividend yielding stocks. The metric for finding a safe company is to look at its CDS RATE. For example, we see that CDS rate will soar when default risk rises as with DB. 

Below is recent news note concerning DB.

"In May, Moody’s downgraded Deutsche to a mere 2 notches above junk.

And credit default swaps – bets that a company is in risk of failing – against Deutsche have absolutely skyrocketed"

Interesting to say the least. Maybe 10 year auction implies US default risk is rising.

scintillator9's picture

A 1.5% yield will look staggering compared to a 50% or more loss when things fall apart again.

Oh, my bad, I forgot that "The Fed" has our back, just like in 2007 / 2008.

LawsofPhysics's picture

Just remember, it isn't a "profit" unless you actually book it and sell...

headfake's picture

and withdraw it and put it in your pocket

Bank_sters's picture

Some fed govenor will come out and say that interest hikes are in play. The next day another will say that additional QE is an option. The 3rd day Obama will campaign with Clinton on the amazing recovery.   


Yeah.  On the state of the US economy and govt I have the optimism of a dirty ashtray.

LawsofPhysics's picture

Correct, the jawboning and propaganda, combined with a lot of social distraction/disorder is working fine and the fraud/theft continues.  "Markets" will continue to rise until all fiat dies...

could be a while.

jus_lite_reading's picture

I agree, but eventually the entire world will need a simultaneous shot of QE to keep this shit show going. At that point, we man up.

kiss of roses's picture

It is simply astonishing how a well educated person like me can be so dreadfully ignorant of money and economics in general. Can anyone recommend a good college level text that will help me learn this stuff?

Automatic Choke's picture

"The Money Game", by "Adam Smith"  (pseudonym)

Written in the '60s.   Still the best book on markets and psychology ever written, still valid, just the names have changed.

Recurring mantra:   "If you don't know who you are, the markets are a very expensive place to find out."


Break_the_Bank's picture

I don't think you want a college course type text book. You will no doubt feel more confused than ever. I suggest "The Creature From Jekyll Island" by G. Edward Griffin. Also read Dumbing Us Down, by John Taylor Gatto. Search for truth first. It will serve you better in the long term.

headfake's picture

The wolf of wall street or boiler room will give you an intro as to what these fuckers are about

pump pump pump dump dump dump

LawsofPhysics's picture

The central banks (via their primary dealers) have been buying equities and corporate debt for a bit.  Give them a second, they will come back to buying government debt soon enough.  When you control the printer and can print as much as you want without putting up any real collateral, you to can and will own everything eventually...

see the problem yet you stupid fucks?

the grateful unemployed's picture

problem is they can buy gold just as easily using worthless paper

fockewulf190's picture

Looks like Belgium didn´t  get the phone call.

bob_bichen's picture
bob_bichen (not verified) Jul 12, 2016 12:28 PM

This kind of talk is really going to make people sad.  We can't have sad people.  It's July and it's time to be happy and journalists have a Big Role in making sure the population is happy.

I think rather than saying "Indirect Bidders ... simply fled" it would have been much more patriotic (and seasonal) to have framed it thusly: "Indirect Bidders ... took a well-deserved holiday."  Sounds so much better, right?

Once again, the subversive "Primary Dealers had to step up big time and purchase a whopping 37.7%" should be recrafted to state "Primary Dealers GOT to step up big time and purchase an America-loving 37.7%!"

And the woeful tone here: "indeed this auction marked a stunning reversal in demand for 10 Y paper" is much more uplifting and lofty when explained like this: "indeed this auction marked a transitory inverse rise in demand for 10 Y paper!"


WORDCRAFT!  A key to happiness!


Bryan's picture

Well done.  +1 for Bob!

Bryan's picture

Who needs bidders when you have a printing press?

RadioFlyer's picture
RadioFlyer (not verified) Jul 12, 2016 12:39 PM

Sounds like a giant Tain is coming.

wisehiney's picture


Reset TLT.

Thanky very much.

You Only Live Twice's picture

This is the beginning of the end of the Petrodollar System. The longer Oil stays low, the less foreign nations need to buy US debt to  get dollars for Oil. If Yellen monetizes, it won't be QE4, it could lead to hyperinflation.

RMolineaux's picture

After hitting all time low yields just a few days ago, it is puzzling to see such a poor 10-year auction.  Could it be that the public here and abroad has suddenly realized that our sick political system has produced two competing dirt bags to occupy the oval office. 

jm's picture

No. USD rates absorbed a rotation out of Gilts and EUR debt. Now the market are covering shorts and considering that the world didn't change enough to warrant runing away from front-running Draghi entirely. 

RMolineaux's picture

Point well taken.  But what if Renzi doesn't get his 40 billion?  On the other hand, nothing seems to deter Europeans from their traditional two month vacations.